Gerdau's Rebar Business Sale To Aid Core Growth, Lower Debt

Brazilian steel producer Gerdau S.A. (NYSE:GGB) yesterday announced that it has signed a definitive agreement to sell some of its U.S. rebar operations to Commercial Metals Company (NYSE:CMC) . Subject to purchase price adjustments, the transaction value has been estimated at $600 million.

The company’s American Depository Receipts have gained roughly 5.9% yesterday, ending the trading session at $3.94.

Details on the Deal

As revealed, Gerdau’s to-be-divested assets include 33 U.S.-based rebar fabrication facilities as well as steel mills based in Knoxville, TN; Jacksonville, FL; Sayreville, NJ and Rancho Cucamonga, CA. These facilities have an annual rolling capacity of 2.5 million tons.

Subject to receipt of regulatory approvals and fulfilment of customary closing conditions, the transaction is anticipated to be completed before the end of 2018.

What the Divestment Means for Gerdau?

Over time, Gerdau has been restructuring its business portfolio inorganically, aiming at strengthening its core and profitable businesses as well as lowering debt burdens. To this end, the company divested its business unit — Premier Thermal Solutions, L.L.C. — to Z Capital Partners, L.L.C. in the first half of 2017 and signed an agreement to sell its long steel industrial units in Chile.

The CMC deal will enable Gerdau concentrate on its other important operations in North America. Prime end markets targeted include construction, transportation, energy and industrial equipment.

Notably, in third-quarter 2017, the company generated roughly 40.3% of its sales from the North America business division. Its long-term debt exiting the quarter was R$14.1 billion while its net debt to earnings before interest, tax, depreciation and amortization ratio was 3.4.

Gerdau currently has $6.8 billion market capitalization. In the last six months, market sentiments have been positive for the company, with the stock yielding 27.5% return. This clearly outpaces 21.5% gain of the industry it belongs to.



Stocks to Consider

Some stocks worth considering in the industry are Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) and Ternium S.A. (NYSE:TX) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Schnitzer Steel’s earnings estimates for fiscal 2018 and fiscal 2019 were revised upward in the last 60 days. Also, the company delivered a positive earnings surprise of 1.61% in the last quarter.

Ternium pulled off an average positive earnings surprise of 27.78% in the last four quarters. Also, its earnings estimates for 2018 improved in the last 60 days.

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